A passbook savings account has a rate of 8 Find the effecti

A passbook savings account has a rate of 8 %. Find the effective annual? yield, rounded to the nearest tenth of a? percent, if the interest is compounded monthly.

Solution

Effective annual? yield = 8.3%

Explanation;

Effective annual? yield = (1+(r / n)) ^ n – 1

r = 8% or 0.08

n = 12

Now, let’s put the values in above given formula;

Effective annual? yield = (1+ (0.08 / 12))^12 – 1

Effective annual? yield = (1+ 0.006667)^12 – 1

Effective annual? yield = (1.006667)^12 – 1

Effective annual? yield = 1.083 – 1

Effective annual? yield = 0.083 or 8.3%